A hold on your checking account resulting from bank garnishment for most bad debts will be lifted after you file for bankruptcy. Bank garnishment, which must be approved by a judge, allows a credit card company or debt collector to freeze your checking account while it takes money from the account to satisfy an unpaid debt.
Bank Garnishment
Bank garnishment is one of the most powerful tools available to a debt collector. Garnishment is possible after a creditor or debt collector files a lawsuit against you for an unpaid debt. Illinois Legal Aid reports that the creditors and debt collectors almost always win in court if they can prove that you owe the debt and defaulted by not making payments. The judgment allows for the debt collector to ask the court for formal permission to garnish your wages.
Frozen Accounts
The Neighborhood Economic Development Advocacy Project, a nonprofit consumer assistance agency, reports that bank accounts are commonly frozen through garnishment because of debts, such as credit cards, bank loans and medical bills. The organization reports that banks must comply with garnishment orders issued by a judge and are under no obligation to notify you that the account is being frozen. While the account is frozen, you are allowed to deposit money but cannot make withdrawals, cash a check or make purchases with your debit card.
Default Judgments
"The New York Times" reports that some bank accounts are frozen after people fail to show up for court hearings. Missing a court date for a debt lawsuit automatically results in a so-called "default judgment" for the debt collector, and bank garnishment can follow. The Times reports that some people don't even realize that their bank account has been frozen until they attempt to use their debit card and the transaction is denied because of insufficient funds.
Inflated Negative Balance
Your account may show a huge negative balance once funds are being held. A hold is placed on your account for the total amount due in the judgment, and the negative balance will remain until the garnishment is lifted or the judgment is paid. The creditor or debt collector will be allowed to make regular withdrawals from the account to satisfy the debt.
The Automatic Stay
Holds or freezes on bank accounts can be lifted following a bankruptcy filing through a legal motion known as an "automatic stay." Legal website Nolo.com reports that an automatic stay immediately halts most debt collection efforts and forces banks to release frozen bank accounts. However, the automatic stay will not resolve issues with your bank account if the money is being held for child support or for the Internal Revenue Service.
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